Treasurer Josh Frydenberg has all but confirmed motorists will be given relief at the petrol pump under a package of cost-of-living measures in Tuesday's federal budget.
In an interview with the ABC, Mr Frydenberg indicated some measures would take effect mid-week, acknowledging high oil prices were a big contributor to the cost of living, which would be a big focus of Mr Frydenberg's fourth budget.
"Fuel prices have skyrocketed, and of course for many families this (using a car) is not a choice," he told the ABC.
"They need their car to get to and from work. They get into their car to drop their kids at school.
"These are costs that families are incurring and of course it's putting real pressure on their household budget."
It is understood that any cut to the 44-cents-a-litre fuel excise would be temporary, likely lasting no more than six months.
If the fuel excise was cut by 5 cents a litre, it would save motorists about $2.50 when filling a 50-litre vehicle. This would cost the federal budget about $1 billion over six months.
Slashing fuel excise by 10 cents a litre would save motorists $5 on a standard refuel but cost the budget $2 billion over six months.
Mr Frydenberg's challenge is to alleviate Australia's higher cost of living while not putting pressure on inflation, which the Treasurer conceded would increase from the current level of 3.5 per cent.
"We do think inflation will even go higher than it is today and we'll make some upgrades in our budget numbers on Tuesday night," he said.
"But as I say, international factors are driving the higher inflation rates. That's the higher fuel costs, obviously exacerbated by the situation in Ukraine, that's the higher food costs — and particularly wheat — that we're seeing as a result of developments in Europe."
He said freight costs had also risen during the pandemic as households switched to making online purchases.
Offset expected to be phased out
The budget is also expected to include a one-off payment to the 4.6 million Australians on welfare and income support. This is expected to be at least $250.
The Low and Middle Income Offset (LMITO), worth $1,080 and paid to about 10 million workers, is expected to be phased out.
But the ABC understands those who received LMITO last year will receive an extra payment to compensate for the higher cost of living.
"Our budget will be responsible. It will have practical measures. It will ease the cost of living pressures right now, as well as putting in place a long-term economic plan for the nation," Mr Frydenberg said.
In December, the mid-year budget update forecast a $99 billion deficit for 2022-23 but Mr Frydenberg said this would be significantly lower, insisting this amounted to "budget repair".
"We're going to see a material improvement to the budget bottom line and we've already started to see that budget repair job in action," he said.
"In fact, the final budget outcome for 2020-21 was $80 billion better than what I had forecast when I delivered the budget the previous year.
"Why? Because more people were in jobs, fewer people were on welfare and that boosted revenue and also saw less expenditure on welfare payments. That's the secret sauce for a strong economy."
Fuel prices 'only part of the story': Labor
But Shadow Treasurer Jim Chalmers said Australians need more than a few dollars off their fuel bill.
"Petrol is a big part of the story, as everybody knows, but it's not the only part of the story," he said.
"We think that there is a place for cost of living relief in the childcare system, we think there is a place for cost of living relief when it comes to power bills — and our policies go to those solutions.
"You're looking for ways to ease cost of living pressures on working families, that have an enduring economic benefit."
With inflation forecast to rise later in the year, Mr Chalmers said there needs to be a clear focus on wages growth to keep pace.
He said the government has not done enough during its time in office to lift real wages.
"No amount of money sprayed around on the eve of an election will make Australians forget a decade of attacks on wages and job security," he said.
"That is a big part of the reason Australians have been under these cost of living pressures."
